There is a belief, held by some, or by most, that assumes most people who were investing in real estate over the last decade had some sort of intelligence. The assumption was that anyone who amassed a few properties, be those for rental or for flip or for some other reason, had to have something going on. Some of these quasi homespun investors made lots and lots of money. Buying, fixing, flipping, it made Jeff Lewis’s lips even puffier and caused even small town investors to reap considerable rewards. But if you believed that most of these investors knew what they were doing, then you haven’t watched many HGTV television shows circa 2006. Smart investors were flipping in 2003, but by 2006, anyone with a few extra borrowed bucks available to them became an investor too.
I watched with strange bemusement the quest of one such television investor, as HGTV documented her attempt to flip a home somewhere in California. Those shows always take place in California, or Toronto, wherever film crews might be idle for long enough to film these 30 minute glimpses into other people’s hell. This particular woman was so far out over her skis I couldn’t bear to finish the show. When I turned away, she was out of money needed to make the astronomical mortgage payment, and since she had quit her stable job in order to pursue real estate riches, she didn’t exactly have any means to make those future payments. These were our investors, which should make clear what went wrong with our markets.
But this is television investing, not real world investing, right? Unfortunately, I saw plenty of this style of investing take place around the Lake Geneva market too. There were plenty of flippers, though not an extreme number, but for all the flippers there were more property hoarders. People who either bought, or likely inherited, several properties and enjoyed fending off potential buyers. These accidental investors weren’t willing to sell in 2004, and certainly not in 2005, and when the highs came in 2006 or 2007, they were looking further, higher, upward and onward, towards better days that would somehow exceed the perfect day they were living in. They pushed away buyers- buyers who would have made them small fortunes and planted them on a firmer financial footing- in favor of the mythical buyers that would materialize in some future year, who would indeed pay them $1MM for their $300k house. These sorts made up many of the investor pool of the 2000s, and though we don’t like to talk in such bold terms, many these investors were stupid.
Like straight stupid. And now, several of them are going through foreclosure. Are we to feel sorry for them? Are we to hope they apply for some of that mortgage assistance money that comes direct from Obama’s stash (your pocket) and flows into theirs? These are not hard luck cases, as the media would have you believe. These are cases of ignorant people doing ignorant things, and they are now paying the price for their self inflicted stupidity and ask that we share in their misery. You can tell that as I write this I have specific cases in mind, instances were investors didn’t sell because their greed was so much more powerful than their limited grasp of the real estate market. These sorts of investors, ignorant every one, are now “losing” properties to foreclosure. And in a cruel twist of irony, the very properties that could have made them rich are instead making them poor.
The foreclosure market at Lake Geneva remains mostly unchanged. I didn’t see anything today that alarmed me, or caused me to rush to this computer to write about. There are plenty of Grand Geneva condominiums heading to foreclosure, seemingly more all the time. Which causes me to think about the first several paragraphs wherein I questioned the intelligence of some real estate consumers, because while units are entering foreclosure at a rapid rate, buyers appear to be buying them at retail at the same pace. This is confusing to me.
I’m seeing a few more foreclosures in Geneva National than I have previously, though the numbers of foreclosures there still aren’t enough to cause me to worry any more than I already do when it comes to that misunderstood development. Geneva National doesn’t deserve this fate, but the trouble there is that the Lake Geneva vacation home market is a low volume market, both in times good and bad. Geneva National requires high volume in order to thrive, and the high volume that materialized for three or four years during the mid 2000s has disappeared and doesn’t look to be returning any time soon.
Lest you misconstrue my commentary today as cold hearted capitalism, I assure you that I understand many foreclosures are indeed no one’s fault. I understand markets can turn, jobs can be lost, and health can fade. I understand these things, so know that when I attack those who succumb to foreclosure I do not mean to say that these truly unfortunate people are to blame. I’m pointing out the investors who simply let greed ruin any chance at a return. I’m brow staring in a most serious manner at those who had no understanding of what they were doing when they were “investing” in real estate. I’m not upset with the innocent, I’m upset with the stupid.
One time, when I was young but not so young as to not know better, my mom asked that I quickly brush out a knot in her hair with one of those brushes that is round, with teeth all around it. I swiped at the tangle a bit, then curled the hair up around the brush in such a way that her hair became tangled in the brush. The hair and the brush had become one, and the only way to remove the brush from the hair was with a scissors. I can remember my mom crying about this. And when I noticed she was crying, and she noticed me noticing, she said that she wasn’t crying because of her hair, she was crying because of my stupidity. That’s how I feel about the investors who are now “losing” their properties to foreclosure.
Watch the foreclosure market here, but don’t become fixated on it. Watch it to learn which segments of the vacation home market are the strongest, and which are the weakest, but know that there are far better values in far better locations if you’ll just watch the open market and pay attention to the trends and individual opportunities that exist there.